Question

Upon graduation, you’ve landed a good long-term job with a major corporation. Your first investment is a house with a total financed cost of $350,000. Since the fixed interest rate is so low for 30-year loans, an amazing 3%/year/month, you decide to pay off the note in 30 years with 360 equal end of month payments. Answer the following questions:

a). What are the monthly mortgage payments for principal and interest?

b). What portion of the 120th payment is interest?

c). What portion of the 120th payment is principal repayment?

d). What is the remaining balance immediately after the 12th year (144th payment)?

e). If you choose to payoff the loan at t=84, how much must you pay?

Additional Problem #2:

CHANGING INTEREST RATE PROBLEM

Trans-Star, a spin-off company of MOPAR, supplies major automobile transmission components to auto manufacturers worldwide and is Mopar’s largest supplier. A Trans-Star Engineer has been tasked with evaluating bids for new-generation CNC machinery to be directly linked to the automated manufacturing of high-precision transmission band components. The following are three interest rates that are included in the Vendor bids. Trans-Star will make payments on a semiannual basis only. The engineer is confused about the effective interest rates-what they are annually and over the payment period of 6-months. Answer the following questions:

Bid #1: 8.25% per year, compounded monthly

Bid #2: 7.60% per year, compounded quarterly

Bid #3: 2.25% per quarter, compounded quarterly

a.) Calculate the effective semiannual interest rate for ALL three bids.

b.) Calculate the effective annual interest rate for ALL three bids.

Answer 1

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